This item by TDS Co-Editor William Galston is cross-posted from The New Republic.
Three questions emerge from the collapse of the super committee. First and least, what will be the immediate political fall-out? Second, will there be other occasions to put broad fiscal issues on the table, or are we condemned to inaction until 2013? And finally, how should President Obama respond?
On the first question, Americans were more inclined to blame Republicans than Democrats for this summer’s debt ceiling fiasco, and the early returns suggest that this trend is continuing with regard to the super committee. A Quinnipiac survey released November 21 showed than 44 percent of voters blamed Republicans for the super committee’s failure, versus 38 percent who blamed Obama and the Democrats. Independents broke along similar lines, 44 to 35 percent.
Not all the news was good for Democrats, however: 49 percent of voters favored an agreement based on spending cuts only (the Republican position) versus 39 percent who wanted some tax increases in the mix as well. Independents felt the same way, by a narrower 45 to 41 margin.
Voters with college degrees favored a mix of tax increases and spending cuts (52-41), as did voters from households with annual incomes of $100,000 or more (49-43). By contrast, voters without college degrees opposed tax increases by a margin of more than 20 points, as did more than 50 percent of all voters with household incomes under $100,000.
In short, the Democratic position is supported by upscale professionals, while the Republican position commands the lion’s share of a downscale, less educated populist coalition. This raises an intriguing question: What happens if the Republicans select as their presidential nominee a man without noticeable populist appeal to oppose an incumbent who has run poorly among them since the beginning of his quest for the presidency?
The failed budget negotiations may not be the end of the matter, however, because two scenarios could bring the parties back to the table. In the first place, the prospect of an additional $600 billion in defense cuts dismays many Republicans and not a few Democrats, including Obama’s outspoken Secretary of Defense. But the majority of congressional Democrats prefer sequestration to the alternatives, and Obama has strongly suggested that he won’t go along with the unraveling of automatic cuts. If the president is prepared to hang tough, in other words, he may spark a conflict between pro-defense and anti-tax Republicans. (Making matters even more interesting, many Republicans are both.) By using the defense cuts trigger as leverage, the president might be able to force budget negotiations involving a different, more flexible group of participants.
There’s also another, grimmer route back to the bargaining table, of course: The market could force the hands of the politicians. The events of the past six months have further weakened international confidence in U.S. governing institutions. Political risk analysis is something Americans used to do about foreign countries; now it’s something foreign analysts do about ours. It’s not hard to imagine a sequence of downgrades and shifts by foreign investors away from the dollar that could make continued partisan gridlock appear increasingly unaffordable. To be sure, some Republicans might hold out in the belief that a collapsing economy would assure victory in November. But that’s risky and would prove counterproductive if persuadable voters came to believe that Republicans were rooting for economic failure.
So in the face of all this, what should Obama do? He will be tempted to put the fiscal debate in neutral and run his 2012 campaign against Republican obstructionism. No doubt his political advisors will be telling him to preserve bright lines and sharp contrasts between himself and his Republican opponent in key areas such as Social Security, Medicare, Medicaid, and taxes.
This is the default position, and it could help Obama narrowly prevail next November. But the president should ask himself what a victory gained on this basis would be worth: What would he be able to accomplish in a second term? After all, his first term has shown that neither political party can impose its will on the other. Unless he were to win a victory as large as FDR in 1936 or LBJ in 1964 (and there’s no prospect of that), his second-term choices reduce to two: continuing gridlock or a new formula for doing the people’s business across party lines.
To that end, the alternative–higher risk, higher reward–strategy is for Obama to offer a much more specific program than he has up to now, making clear how he would combine stimulus over the next year or two with a plan to place the budget on a sustainable course by the end of the decade. That would mean organizing his 2012 State of the Union and budget proposal around two issues–bold new measures to spur consumption and job creation, coupled with a long-term budget plan that combines the best features of the Bowles-Simpson and Domenici-Rivlin plans.
This may sound like unconvincing boiler-plate: What bold new growth measures? Well, here’s an idea ripped from an article by Adam Posen:
Central banks and governments can engage in forms of coordinated action that will target the burden of past debts that is hanging over the global economy. In the United States, that means resolving the distressed mortgage debt that is weakening our financial system and reducing labor mobility, thereby constraining not only our growth but also our ability to grow. It is time for the Federal Reserve and elected officials to jointly tackle that housing debt.
Posen is the latest in a lengthening list of leading economists across the ideological spectrum to finger mortgage debt as the core of our failure to recover and grow briskly enough to bring down unemployment. If elites can’t figure out how to fix this problem, average Americans will pay the price. Conversely, nothing would do more to benefit working Americans. Is the president prepared to take the lead? And if he does, will anyone follow?